Case: 21-16506, 03/31/2022, ID: 12409980, DktEntry: 118, Page 1 of 36
`
`No. 21-16506
`IN THE UNITED STATES COURT OF APPEALS
`FOR THE NINTH CIRCUIT
`
`Epic Games, Inc.,
`Plaintiff-Counter-Defendant-
`Appellant-Cross-Appellee,
`
`
`
`v.
`
`Apple, Inc.,
`
`Defendant-Counterclaimant-
`Appellee-Cross-Appellant.
`
`
`
`On Appeal from the United States District Court
`for the Northern District of California
`No. 4:20-cv-05640-YGR
`Hon. Yvonne Gonzalez Rogers, Judge
`BRIEF OF THE STATE OF CALIFORNIA AS AMICUS
`CURIAE IN SUPPORT OF NEITHER PARTY
`ROB BONTA
`Attorney General of California
`KATHLEEN FOOTE
`Senior Assistant Attorney General
`PAULA BLIZZARD
`Supervising Deputy Attorney General
`SHIRA HOFFMAN
`ROBERT B. MCNARY
`BRIAN D. WANG
`Deputy Attorneys General
`455 Golden Gate Avenue, Suite 11000
`San Francisco, CA 94102-7004
`Telephone: (415) 510-3871
`Fax: (415) 703-5843
`Email: Brian.Wang@doj.ca.gov
`Attorneys for Amicus Curiae the State of
`California
`
`
`
`No. 21-16506
`IN THE UNITED STATES COURT OF APPEALS
`FOR THE NINTH CIRCUIT
`
`Epic Games, Inc.,
`Plaintiff-Counter-Defendant-
`Appellant-Cross-Appellee,
`
`
`
`v.
`
`Apple, Inc.,
`
`Defendant-Counterclaimant-
`Appellee-Cross-Appellant.
`
`
`
`On Appeal from the United States District Court
`for the Northern District of California
`No. 4:20-cv-05640-YGR
`Hon. Yvonne Gonzalez Rogers, Judge
`BRIEF OF THE STATE OF CALIFORNIA AS AMICUS
`CURIAE IN SUPPORT OF NEITHER PARTY
`ROB BONTA
`Attorney General of California
`KATHLEEN FOOTE
`Senior Assistant Attorney General
`PAULA BLIZZARD
`Supervising Deputy Attorney General
`SHIRA HOFFMAN
`ROBERT B. MCNARY
`BRIAN D. WANG
`Deputy Attorneys General
`455 Golden Gate Avenue, Suite 11000
`San Francisco, CA 94102-7004
`Telephone: (415) 510-3871
`Fax: (415) 703-5843
`Email: Brian.Wang@doj.ca.gov
`Attorneys for Amicus Curiae the State of
`California
`
`
`
`Case: 21-16506, 03/31/2022, ID: 12409980, DktEntry: 118, Page 2 of 36
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`TABLE OF CONTENTS
`
`
`Page
`
`B.
`
`
`Interest of Amicus .......................................................................................... 1
`Summary of Argument .................................................................................. 2
`Argument ....................................................................................................... 5
`I.
`This Court’s Analysis Should Be Informed by a Proper
`Understanding of the UCL ........................................................ 5
`A.
`The California Legislature Enacted the UCL to
`Address a Broad Range of Wrongful Business
`Conduct ........................................................................... 5
`The California Supreme Court Has Identified
`Three Tests to Determine Whether Conduct
`Violates the UCL’s “Unfair” Prong ................................ 9
`C. A UCL Plaintiff Need Not Establish a Concurrent
`Violation of Antitrust Law ............................................ 12
`1.
`California Supreme Court precedent
`recognizes that conduct may violate the
`UCL without violating antitrust law ................... 12
`The “safe harbor” rule applies at most to
`conduct that is expressly precluded from
`antitrust liability .................................................. 16
`D. Nothing in California Supreme Court Precedent
`Requires Applying Specific Methods from
`Antitrust Analysis to UCL Claims and Courts Are
`Free to Consider a Variety of Factors ........................... 19
`II. An Injunction Prohibiting a California Company from
`Violating the UCL in Interactions with Out-of-State
`Customers Is Consistent with the Commerce Clause ............. 23
`III. This Court Should Certify to the California Supreme
`Court Any Novel Questions Regarding the UCL’s Proper
`Scope and Interpretation ......................................................... 25
`Conclusion ................................................................................................... 27
`
`2.
`
`
`
`i
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`
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`TABLE OF AUTHORITIES
`
`
`Page
`
`
`CASES
`Aleksick v. 7-Eleven, Inc.
`205 Cal. App. 4th 1176 (2012) ................................................................ 11
`American Philatelic Soc’y v. Claibourne
`3 Cal. 2d 689 (1935) .............................................................................. 6, 7
`Barnes-Wallace v. City of San Diego
`607 F.3d 1167 (9th Cir. 2010) ................................................................. 26
`Barquis v. Merch. Collection Ass’n
`7 Cal. 3d 94 (1972) ........................................................................... passim
`Camacho v. Automobile Club of Southern California
`142 Cal. App. 4th 1394 (2006) ................................................................ 11
`Cel-Tech Commc’ns, Inc. v. L.A. Cellular Tel. Co.
`20 Cal. 4th 163 (1999) ...................................................................... passim
`Chavez v. Whirlpool Corp.
`93 Cal. App. 4th 363 (2001) ............................................................. passim
`City of San Jose v. Office of the Comm’r of Baseball
`776 F.3d 686 (9th Cir. 2015) ............................................................ passim
`Clothesrigger, Inc. v. GTE Corp.
`191 Cal. App. 3d 605 (1987) ................................................................... 24
`Darush v. Revision LP
`No. CV 12-10296 GAF AGRX, 2013 WL 1749539, at *6
`(C.D. Cal. Apr. 10, 2013) .................................................................. 22, 23
`Drum v. San Fernando Valley Bar Ass’n
`182 Cal. App. 4th 247 (2010) .................................................................. 11
`
`
`
`ii
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`TABLE OF AUTHORITIES
`(continued)
`
`Page
`
`
`Fidelity Appraisal Co. v. Federal Appraisal Co.
`217 Cal. 307 (1933) ................................................................................... 8
`Flood v. Kuhn
`407 U.S. 258 (1972)................................................................................. 18
`Healy v. Beer Inst., Inc.
`491 U.S. 324 (1989)................................................................................. 24
`Hernandez v. Restoration Hardware, Inc.
`4 Cal. 5th 260 (2018) ............................................................................... 23
`Hesse v. Grossman
`152 Cal. App. 2d 536 (1957) ..................................................................... 5
`In re Cipro Cases I & II
`61 Cal. 4th 116 (2015) ............................................................................. 23
`In re Tobacco II Cases
`46 Cal. 4th 298 (2009) ......................................................................... 7, 23
`Klein v. Chevron U.S.A., Inc.
`202 Cal. App. 4th 1342 (2012) ................................................................ 16
`Krause v. Trinity Mgmt. Servs. Inc.
`23 Cal. 4th 116 (2000) ........................................................................... 5, 6
`Kremen v. Cohen
`325 F.3d 1035 (9th Cir. 2003) ................................................................. 26
`Kwikset Corp. v. Superior Court
`51 Cal. 4th 310 (2011) ............................................................................... 5
`LiveUniverse, Inc. v. MySpace, Inc.
`304 F. App’x 554 (9th Cir. 2008) ...................................................... 18, 19
`
`
`
`iii
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`TABLE OF AUTHORITIES
`(continued)
`
`Page
`
`
`Lozano v. AT&T Wireless Servs., Inc.
`504 F.3d 718 (9th Cir. 2007) ............................................................. 12, 25
`Marks v. Loral Corp.
`57 Cal. App. 4th 30 (1997) ...................................................................... 21
`Murray v. BEJ Mins, LLC
`924 F.3d 1070 (9th Cir. 2019) ................................................................. 25
`Nationwide Biweekly Admin., Inc. v. Superior Court
`9 Cal. 5th 279 (2020) ................................................................... 10, 11, 20
`Norwest Mortg., Inc. v. Superior Court
`72 Cal. App. 4th 214 (1999) .................................................................... 24
`
`Oakland-Alameda County Builders’ Exch. v. F. P. Lathrop
`Constr. Co.
`4 Cal. 3d 354 (1971) .......................................................................... 21, 22
`Ohio v. American Express
`138 S. Ct. 2274 (2018) ....................................................................... 22, 23
`Parents Involved in Cmty. Sch. v. Seattle Sch. Dist. No. 1
`294 F.3d 1085 (9th Cir. 2002) ................................................................. 26
`People ex rel. Mosk v. Nat’l Research Co.
`201 Cal. App. 2d 765 (1962) ................................................................. 5, 6
`People v. Nat’l Ass’n of Realtors
`120 Cal. App. 3d 459 (1981) ............................................................. 13, 14
`Pohl v. Anderson
`13 Cal. App. 2d 241 (1936) ....................................................................... 8
`Progressive W. Ins. Co. v. Superior Court
`135 Cal. App. 4th 263 (2005) ........................................................ 9, 10, 11
`
`
`
`iv
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`TABLE OF AUTHORITIES
`(continued)
`
`Page
`
`
`State Farm Fire & Cas. Co. v. Superior Court
`45 Cal. App. 4th 1093 (1996) .................................................................... 8
`Stop Youth Addiction, Inc. v. Lucky Stores
`17 Cal. 4th 553 (1998) ......................................................................... 7, 16
`Sun Microsystems, Inc. v. Microsoft Corp.
`87 F. Supp. 2d 992 (N.D. Cal. 2000) ....................................................... 15
`Ticconi v. Blue Shield of California Life & Health Ins. Co.
`160 Cal. App. 4th 528 (2008) .................................................................. 11
`Toolson v. N.Y. Yankees, Inc.
`346 U.S. 356 (1953)................................................................................. 18
`United States v. Colgate & Co.
`250 U.S. 300 (1919)................................................................................. 17
`Watson Labs., Inc. v. Rhone-Poulenc Rorer, Inc.
`178 F. Supp. 2d 1099 (C.D. Cal. 2001) ................................................... 15
`Wershba v. Apple Computer, Inc.
`91 Cal. App. 4th 224 (2001) .................................................................... 23
`Zhang v. Superior Court
`57 Cal. 4th 364 (2013) ....................................................................... 11, 16
`STATUTES
`California Business & Professions Code
`§ 17200 .............................................................................................. 1, 5, 7
`§ 17205 .................................................................................................... 14
`California Civil Code § 3369 (1933) .......................................................... 5, 6
`Federal Trade Commission Act § 5
`15 U.S.C. § 45 .................................................................................. 3, 9, 10
`
`
`
`v
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`TABLE OF AUTHORITIES
`(continued)
`
`
`OTHER AUTHORITIES
`Thomas A. Papageorge, The Unfair Competition Statute:
`California’s Sleeping Giant Awakens, 4 Whittier L. Rev.
`561, 564-65 (1982) .................................................................................... 6
`
`Page
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`vi
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`INTEREST OF AMICUS
`The State of California has a strong interest in the proper interpretation
`
`
`
`
`
`and development of its Unfair Competition Law (UCL), Cal. Bus. & Prof.
`
`Code § 17200 et seq., which is among the State’s most important consumer
`
`protection and business regulation statutes.1 The Attorney General of
`
`California enforces the UCL and regularly brings actions in the name of the
`
`People under the statute to protect consumers and competition.
`
`
`
`Apple’s cross-appeal raises issues related to the proper application of
`
`the UCL. The district court found that Apple’s anti-steering provisions
`
`violated the UCL, while at the same time concluding that Epic had not
`
`established that Apple’s conduct violated the federal Sherman Act or
`
`California’s Cartwright Act. Based on Apple’s UCL violation, the district
`
`court enjoined Apple from enforcing its anti-steering polices. After the
`
`district court denied Apple’s motion for a stay of the injunction pending
`
`appeal, Apple renewed its motion for a stay in this Court, which the Court
`
`granted on December 8, 2021, citing City of San Jose v. Office of the
`
`Comm’r of Baseball, 776 F.3d 686, 691-92 (9th Cir. 2015) and Chavez v.
`
`Whirlpool Corp., 93 Cal. App. 4th 363, 375 (2001). Among the issues before
`
`
`1 The State, through its Attorney General, files this amicus brief
`pursuant to Rule 29(a)(2) of the Federal Rules of Appellate Procedure.
`1
`
`
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`
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`the Court are the appropriate scope of the UCL’s “unfair” prong and the
`
`availability of injunctive relief under California law against a California
`
`company.
`
`
`
`To assist the Court in deciding this matter, the State submits this brief
`
`focused on the “unfair” prong of the UCL. In particular, the State will
`
`discuss the history and development of the UCL, the current UCL tests
`
`recognized by the California Supreme Court, the relation of the UCL to
`
`federal and state antitrust laws, and the appropriate scope of injunctive relief
`
`when a plaintiff establishes a violation of the “unfair” prong. The State’s
`
`legal analysis is based on the Attorney General’s expertise and experience as
`
`the chief enforcer of California antitrust and unfair competition laws. This
`
`brief does not support either party or take a position on whether the
`
`judgment below should be affirmed or reversed. The State’s arguments on
`
`the limited issues addressed in this brief do not indicate agreement or
`
`disagreement with the trial court’s rulings on other issues, or with any other
`
`party’s arguments on those issues.
`
`SUMMARY OF ARGUMENT
`I. As a broad and equitable statute, the UCL provides courts with
`
`
`
`discretion to identify and prohibit unfair conduct. This authority is essential
`
`2
`
`
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`
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`to business regulation and consumer protection in California, and a proper
`
`understanding of the UCL is essential to the resolution of this case.
`
`
`
`First, the UCL creates a broad equitable standard that enables courts to
`
`redress myriad forms of unfair, unlawful, or fraudulent business behavior. In
`
`operation for almost a century, the UCL expanded traditional elements of the
`
`unfair competition tort both to cover more types of conduct and to protect
`
`consumers in addition to competitors.
`
`
`
`Second, the California Supreme Court has identified three tests
`
`governing the “unfair” prong of the UCL: a balancing test; a test that asks
`
`whether the finding of unfairness was “tethered” to a legislatively declared
`
`policy or proof of some actual or threatened impact on competition; and a
`
`three-part test borrowed from the test used to determine unfairness under
`
`Section 5 of the Federal Trade Commission (FTC) Act. While the balancing
`
`test is the traditional standard, the California Supreme Court has held that
`
`the tethering test applies in an action by a competitor alleging
`
`anticompetitive practices. Importantly, that Court has not endorsed a single
`
`universal test for all claims under the “unfair” prong.
`
`
`
`Third, as the district court recognized below, a UCL plaintiff need not
`
`establish a concurrent antitrust violation. Chavez and San Jose are not to the
`
`contrary. Those cases recognized a safe harbor under the UCL for conduct
`3
`
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`
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`affirmatively authorized by law, but that exception does not apply when no
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`source of law affirmatively authorizes conduct being challenged under the
`
`UCL.
`
`
`
`Fourth, the California Supreme Court has not required the strictures of
`
`a typical antitrust analysis when evaluating conduct for unfairness under the
`
`UCL. Trial courts are free to consider a variety of factors. Those factors
`
`include limits on the free flow of price information, which the California
`
`Supreme Court has explicitly recognized as anticompetitive.
`
`
`
`II. The UCL does not allow a California company to avail itself of the
`
`privileges of California law while simultaneously violating California law in
`
`its interactions with individuals or entities located in other States. Courts do
`
`not contravene the dormant Commerce Clause when they enforce that
`
`prohibition against a California company.
`
`III. Finally, if this Court is unsure about any questions of UCL
`
`interpretation, this Court should certify those questions to the California
`
`Supreme Court.
`
`4
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`
`
`ARGUMENT
`I. THIS COURT’S ANALYSIS SHOULD BE INFORMED BY A PROPER
`UNDERSTANDING OF THE UCL
`A. The California Legislature Enacted the UCL to Address a
`Broad Range of Wrongful Business Conduct
`California’s Unfair Competition Law imposes “broad” and “sweeping”
`
`prohibitions against unfair, unlawful, or fraudulent business acts or
`
`practices. Cel-Tech Commc’ns, Inc. v. L.A. Cellular Tel. Co., 20 Cal. 4th
`
`163, 180 (1999); see Cal. Bus. & Prof. Code § 17200 et seq. In enacting the
`
`statute, the Legislature sought “to protect both consumers and competitors
`
`by promoting fair competition in commercial markets for goods and
`
`services.” Kwikset Corp. v. Superior Court, 51 Cal. 4th 310, 320 (2011). The
`
`UCL thus authorizes courts to use their equitable power to combat the varied
`
`forms of unfair practice that “may run the gamut of human ingenuity and
`
`chicanery.” People ex rel. Mosk v. Nat’l Research Co., 201 Cal. App. 2d
`
`765, 772 (1962).
`
`The UCL originated in 1887 in California Civil Code Section 3369 to
`
`enforce basic rules of “common honesty and accepted business ethics.” See,
`
`e.g., Hesse v. Grossman, 152 Cal. App. 2d 536, 540 (1957). The Legislature
`
`expanded Section 3369 in 1933 to authorize courts to enjoin “unfair
`
`practices.” See Krause v. Trinity Mgmt. Servs. Inc., 23 Cal. 4th 116, 129
`
`5
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`(2000). Section 3369 authorized injunctive relief against “any person
`
`performing or proposing to perform an act of unfair competition,” where
`
`injunctive relief could be pursued by the Attorney General and others. Cal.
`
`Civ. Code § 3369(2) (1933) (as amended by 1933 Cal. Stat. ch. 953, § 1 at
`
`2482). The modern UCL is broader than the original 1887 version, extending
`
`to consumers the protection once afforded only to direct competitors.
`
`Barquis v. Merch. Collection Ass’n, 7 Cal. 3d 94, 109 (1972). “With passage
`
`of time and accompanying epochal changes in industrial and economic
`
`conditions, the legal concept of unfair competition broadened appreciably …
`
`partly by the flexibility and breadth of relief afforded by equity, and partly
`
`by changing methods of business and changing standards of commercial
`
`morality.” Nat’l Research, 201 Cal. App. 2d at 770.
`
`The UCL provides law enforcers a broad and flexible tool for
`
`combating unfair business practices harming competitors or consumers. See,
`
`e.g., id. at 770-72; see generally Thomas A. Papageorge, The Unfair
`
`Competition Statute: California’s Sleeping Giant Awakens, 4 Whittier L.
`
`Rev. 561, 564-65 (1982). Indeed, California courts have recognized that the
`
`Legislature intentionally framed the UCL in broad language to address the
`
`innumerable “new schemes which the fertility of man’s invention would
`
`contrive.” American Philatelic Soc’y v. Claibourne, 3 Cal. 2d 689, 698
`6
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`(1935); accord, e.g., Cel-Tech, 20 Cal. 4th at 181. As the Claibourne court
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`observed: “When a scheme is evolved which on its face violates the
`
`fundamental rules of honesty and fair dealing, a court of equity is not
`
`impotent to frustrate its consummation because the scheme is an original
`
`one. … [A]n equity court must not lose sight, not only of its power, but of its
`
`duty to arrive at a just solution of the problem.” 3 Cal. 2d at 698-99.
`
`The California Supreme Court has rejected narrower interpretations of
`
`the UCL, instead endorsing the view that that the California Legislature
`
`intended the UCL’s “sweeping language to permit tribunals to enjoin on-
`
`going wrongful business conduct in whatever context such activity might
`
`occur.” Barquis, 7 Cal. 3d at 111. The Court has even noted that “whenever
`
`the Legislature has acted to amend the UCL, it has done so only to expand
`
`its scope, never to narrow it.” Stop Youth Addiction, Inc. v. Lucky Stores, 17
`
`Cal. 4th 553, 570 (1998).2
`
`The modern UCL has three prongs: “unfair” (addressed herein) as well
`
`as “unlawful” and “fraudulent.” In re Tobacco II Cases, 46 Cal. 4th 298, 311
`
`(2009); see Cal. Bus. & Prof. Code § 17200. In keeping with its history, the
`
`
`2 The statute’s 2004 amendment, enacted by statewide voter
`proposition, limited private plaintiff standing in certain UCL cases, but did
`not modify the scope of unfair practices covered by the law.
`7
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`“unfair” prong has been interpreted to be “intentionally broad, thus allowing
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`courts maximum discretion to prohibit new schemes to defraud.” State Farm
`
`Fire & Cas. Co. v. Superior Court, 45 Cal. App. 4th 1093, 1103 (1996). For
`
`almost 100 years, the California Supreme Court has endorsed broad
`
`discretion under the UCL to trial courts, noting that “[i]t is difficult indeed to
`
`draw the line” between acceptable and illegitimate methods of competition,
`
`but nonetheless firmly entrusting that line-drawing exercise to the trial
`
`court’s discretion. See Fidelity Appraisal Co. v. Federal Appraisal Co., 217
`
`Cal. 307, 314 (1933).
`
`While the UCL does not authorize courts to “simply impose their own
`
`notions of the day as to what is fair or unfair,” it “‘undeniably establishes …
`
`a wide standard to guide courts of equity’” because “‘the Legislature
`
`evidently concluded that a less inclusive standard would not be adequate.’”
`
`Cel-Tech, 20 Cal. 4th at 181 (quoting Barquis, 7 Cal. 3d at 111-12).
`
`California courts thus have long held that each UCL case must be analyzed
`
`based on its particular facts and circumstances: “no inflexible rule can be
`
`laid down as to what conduct will constitute unfair competition. Each case
`
`is, in a measure, a law unto itself.” Pohl v. Anderson, 13 Cal. App. 2d 241,
`
`242 (1936). Instead of a narrowly defined rule, the UCL empowers the court
`
`with broad equitable authority to redress a scheme that “violates the
`8
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`fundamental rules of honesty and fair dealing.” Barquis, 7 Cal. 3d at 112
`
`(quoting Claibourne, 3 Cal. 2d at 698-99).
`
`B. The California Supreme Court Has Identified Three
`Tests to Determine Whether Conduct Violates the UCL’s
`“Unfair” Prong
`Within the historical broad equitable reach of the UCL, there are three
`
`tests that guide trial courts in applying the UCL unfair prong: the balancing
`
`test, the tethering test, and the FTC test.
`
`Before the Cel-Tech decision in 1999, courts applied a “balancing” test
`
`in both consumer and competitor cases. That test requires a court to
`
`determine whether a business practice or act is unfair by “examination of the
`
`impact of the practice or act on its victim balanced against the reasons,
`
`justifications and motives of the alleged wrongdoer. In brief, the court must
`
`weigh the utility of the defendant’s conduct against the gravity of the harm
`
`to the alleged victim.” Progressive W. Ins. Co. v. Superior Court, 135 Cal.
`
`App. 4th 263, 285 (2005) (internal quotation marks omitted). Cel-Tech
`
`makes clear that this test is no longer appropriate in UCL actions brought by
`
`competitors alleging anticompetitive conduct, 20 Cal. 4th at 186-87, but the
`
`test continues to be applied in consumer cases, see, e.g., Progressive W. Ins.
`
`Co., 135 Cal. App. 4th at 286 (concluding that “the balancing test should
`
`continue to apply in consumer cases … because consumers are more
`
`9
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`vulnerable to unfair business practices than businesses and without the
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`necessary resources to protect themselves from sharp practices”).
`
`In Cel-Tech, the California Supreme Court articulated what has come to
`
`be known as the “tethering” test. 20 Cal. 4th at 180. The Court held that
`
`“any finding of unfairness to competitors under [the UCL] be tethered to
`
`some legislatively declared policy or proof of some actual or threatened
`
`impact on competition.” Id. at 186-87 (emphasis added). The Court
`
`explained that when a plaintiff brings a UCL claim alleging injury from a
`
`direct competitor’s “unfair” act or practice, the word “unfair” means
`
`“conduct that threatens an incipient violation of an antitrust law, or violates
`
`the policy or spirit of one of those laws because its effects are comparable to
`
`or the same as a violation of the law, or otherwise significantly threatens or
`
`harms competition.” Id. at 187. As the Court recently reaffirmed, however,
`
`Cel-Tech holds only that the tethering test applies in “an action by a
`
`competitor alleging anticompetitive practices.” Nationwide Biweekly Admin.,
`
`Inc. v. Superior Court, 9 Cal. 5th 279, 303 (2020).
`
`Finally, instead of the tethering test or the balancing test, a handful of
`
`California appellate courts have borrowed the test used to evaluate conduct
`
`for unfairness under Section 5 of the FTC Act, 15 U.S.C. § 45(n), when
`
`interpreting the UCL. That test requires “(1) the consumer injury must be
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`substantial; (2) the injury must not be outweighed by any countervailing
`
`benefits to consumers or competition; and (3) it must be an injury that
`
`consumers themselves could not reasonably have avoided.” Drum v. San
`
`Fernando Valley Bar Ass’n, 182 Cal. App. 4th 247, 257 (2010) (internal
`
`quotation marks and citation omitted).
`
`The California Supreme Court recently observed that “[i]n the years
`
`since Cel-Tech, a split of authority has developed in the Courts of Appeal
`
`with regard to the proper test for determining whether a business practice is
`
`unfair under the UCL in consumer cases, with appellate decisions adopting
`
`three different tests for determining unfairness in the consumer context.”
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`Nationwide Biweekly Admin., 9 Cal. 5th at 303; see also Zhang v. Superior
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`Court, 57 Cal. 4th 364, 380 at n.9 (2013) (collecting cases).3 The California
`
`
`3 See Aleksick v. 7-Eleven, Inc., 205 Cal. App. 4th 1176, 1192 (2012)
`(public policy that is predicate for action must be tethered to specific
`constitutional, statutory or regulatory provisions); Ticconi v. Blue Shield of
`California Life & Health Ins. Co., 160 Cal. App. 4th 528, 539 (2008)
`(applying balancing test, but also examining whether practice offends
`established public policy or is immoral, unethical, oppressive, unscrupulous
`or substantially injurious to consumers); Camacho v. Automobile Club of
`Southern California, 142 Cal. App. 4th 1394, 1403 (2006) (consumer injury
`must be substantial, and neither outweighed by countervailing benefits nor
`avoidable by consumers); Progressive West Ins. Co. v. Superior Court, 135
`Cal. App. 4th 263, 285 (2005) (impact of the act or practice on victim is
`balanced against reasons, justifications and motives of the alleged
`wrongdoer).
`
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`Supreme Court has not yet adopted a particular test to govern UCL
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`consumer cases. For its part, the Ninth Circuit has declined to apply the FTC
`
`test with respect to anti-consumer conduct when analyzing the UCL’s
`
`unfairness prong. Lozano v. AT&T Wireless Servs., Inc., 504 F.3d 718, 736
`
`(9th Cir. 2007).
`
`C. A UCL Plaintiff Need Not Establish a Concurrent
`Violation of Antitrust Law
`1. California Supreme Court precedent recognizes that
`conduct may violate the UCL without violating
`antitrust law
`The California Supreme Court has held that conduct can be unfair
`
`under the UCL without being unlawful under any other law: “The statutory
`
`language referring to ‘any unlawful, unfair or fraudulent’ practice (italics
`
`added) makes clear that a practice may be deemed unfair even if not
`
`specifically proscribed by some other law.” Cel-Tech, 20 Cal. 4th at 180
`
`(internal quotations omitted). Instead, for an “unfairness” case under Cel-
`
`Tech, a plaintiff must show harm to competition or a significant threat of
`
`such harm. See 20 Cal. 4th at 187. That standard supports “a major purpose”
`
`of the UCL: “the preservation of fair business competition.” Id. at 180
`
`(quoting Barquis, 7 Cal. 3d at 110).
`
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`Cel-Tech made clear that finding a defendant’s conduct “unfair” in the
`
`
`
`
`
`absence of a violation of any other law should require more than a
`
`disgruntled competitor, and identified three such potential circumstances,
`
`each of them explicitly designed with fair competition in mind. First,
`
`“unfair” could mean conduct that “threatens an incipient violation of the
`
`antitrust laws.” Cel-Tech, 20 Cal. 4th at 187. Second, “unfair” could mean
`
`violating the “policy or spirit” of the antitrust laws, because the “effects are
`
`comparable or the same.” Id. And finally, “unfair” could mean conduct that
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`“otherwise significantly threatens or harms competition.” Id. All three of
`
`these formulations expressly contemplate that conduct may be actionable
`
`under the UCL even if it does not rise to the level of an antitrust violation.
`
`
`
`Cel-Tech recognized that the California Legislature intended for the
`
`UCL “to permit tribunals to enjoin on-going wrongful business conduct in
`
`whatever context such activity might occur … precisely to enable judicial
`
`tribunals to deal with the innumerable new schemes which the fertility of
`
`man’s invention would contrive.” Id. at 181. A focus of the UCL is fair
`
`competition, and in order to reach novel or unique types of unfair business
`
`conduct, the statute is expressly intended to be broader and more flexible
`
`than antitrust statutes. The UCL and the antitrust laws provide cumulative
`
`remedies by design. People v. Nat’l Ass’n of Realtors, 120 Cal. App. 3d 459,
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`
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`473-74 (1981); see Cal. Bus. & Prof. Code § 17205 (“Unless otherwise
`
`expressly provided, the remedies or penalties provided by this chapter are
`
`cumulative to each other and to the remedies or penalties available under all
`
`other laws of this state.”).
`
`At the same time, Cel-Tech acknowledged that the UCL’s unfair prong
`
`is not a license for courts to pursue their own policy agendas. “Although the
`
`unfair competition law’s scope is sweeping, it is not unlimited. Courts may
`
`not simply impose their own notions of the day as to what is fair or unfair.”
`
`Cel-Tech, 20 Cal. 4th at 185. That consideration, the Court explained, made
`
`it appropriate to “devise a more precise test for determining what is unfair
`
`under the unfair competition law” in actions brought by competitors alleging
`
`anticompetitive conduct. Id. Therefore, although Cel-Tech held that “unfair”
`
`can mean something less than an antitrust violation, the last 20 years have
`
`not seen a rush of trial courts finding anticompetitive unfairness without
`
`concurrent unlawfulness. To the contrary, state and federal courts have
`
`exercised sound discretion in making such findings only when circumstances
`
`warrant.
`
`The State has identified two published opinions since Cel-Tech in
`
`which a federal court within the Ninth Circuit allowed a UCL unfairness
`
`claim alleging anticompetitive conduct to proceed without a concurrent
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`
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`unlawful claim. In Sun Microsystems, Inc. v. Microsoft Corp., 87 F. Supp.
`
`2d 992, 999 (N.D. Cal. 2000) the court held that “Cel-Tech appears to
`
`distinguish the proof required in cases by a competitor alleging ‘unfair’
`
`anticompetitive business practices from claims by competitors or consumers
`
`for ‘fraudulent’ or ‘unlawful’ business practices or ‘unfair, deceptive, untrue
`
`or misleading advertising.’” After Microsoft licensed Sun’s Java technology
`
`and then extended it to have deliberate “strategic incompatibilities” with
`
`Sun’s original version, the court issued a preliminary injunction against
`
`Microsoft under the unfair prong of the UCL, despite recognizing that
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`“[t]here has been no showing that Microsoft has engaged in any fraudulent
`
`business practice or scheme or that it violated some specific statutory
`
`proscription.” Id. at 995, 999. In Watson Labs., Inc. v. Rhone-Poulenc Rorer,
`
`Inc., 178 F. Supp. 2d 1099, 1117-19 (C.D. Cal. 2001), the court ruled that a
`
`UCL unfairness claim regarding a pharmaceutical supply contract can
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`proceed “beyond the pleading stage” when “Plaintiff … sufficiently alleg[es]
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